Most recent update: [July 22nd , 2022]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Cosmos, made available on the VirgoCX Platform, including an opinion that Cosmos is not itself a security and/or derivative.
What Is Cosmos?
The Cosmos Network facilitates scaling, communication, and interoperation between separate chains, allowing different chains to transact. Often referred to as the “internet of blockchains,” Cosmos is looking to bring together different blockchains within a single platform that would help solve the key issues that plague blockchain technology, namely scalability, usability, interoperability, and sovereignty. Cosmos’s focus on customizability and interoperability sets it apart from other projects in the same space.
Cosmos does not prioritize its network; instead, it focuses on creating an ecosystem of networks capable of sharing data and transactions programmatically, without the involvement of any central authority party to the deal or activity. The platform focuses on compatibility with other blockchains, allowing it to interact with other projects, blockchains, and cryptocurrencies.
Different projects look to establish themselves as the leading light in their specific space or industry. With different projects spread across different areas, the interaction between blockchains and individual blockchain objects becomes very difficult. For example, Bitcoin and Ethereum cannot communicate directly, and the same applies to several other blockchains. This situation leads to blockchains being isolated from each other and unable to communicate or share information in any convenient manner. Cosmos looks to create and maintain a link between different projects and blockchains and tries to open blockchains to features such as cross-chains of smart contracts and exchange tokens directly between two projects or exchanges without the involvement of a third party or an external exchange.
Cosmos also acts as a complete technology stack that allows a streamlined development process allowing developers to create their own custom blockchains.
Key Highlights in the History of Cosmos
- April 2017 - Cosmos raises $17 million in 30 minutes during the initial cosmos token sale.
- December 2019 - Game of Stakes launches on the Cosmos network.
- March 2019 - The Cosmos Mainnet is launched.
- November 2019 - The first project built using the Cosmos SDK, Kava Labs, launches its mainnet.
- February 2020 - The Cosmos team splits. Jae Kwon steps down as CEO.
- September 2020 - Cosmos partners with Nym, bringing anonymous credentials to Cosmos.
- February 2021 - Stargate, which also contains the first public release of the Inter- Blockchain Communication protocol, is launched.
How Does Cosmos Work?
The Cosmos Network relies on three main layers to function optimally. These layers are the application layer, the networking layer, and the consensus layer.
- Application layer: The application layer is the layer that processes all transactions and updates the network’s state.
- Networking Layer: This layer makes communication between blockchains and transactions possible.
- Consensus layer: The consensus layer helps different nodes reach a consensus on the system’s state.
The Cosmos network allows developers to build different blockchain applications by using a specific set of tools. These are:
Tendermint: Tendermint is one of the essential aspects of the layered design, allowing developers to build blockchains without the need to code them from the ground up.
Tendermint BFT: The Tendermint BFT is an algorithm utilized by computers running Cosmos to validate transactions, secure the network, and add blocks to the blockchain. The Tendermint core, a Proof-of-Stake governance mechanism, keeps computers running the Cosmos Hub synced. Participants need to stake ATOM, which is the native currency of the Cosmos Network, to vote on changes and power the blockchain. Only nodes in the top 100 nodes staking ATOM can become validators, with the voting power decided by the number of ATOM tokens staked.
Hubs and Zones: The Cosmos Hub was the first blockchain launched on Cosmos and acts as an intermediary between other independent blockchains created in the Cosmos Network. These are called zones, and each zone can carry out its functions independently. The Cosmos Hub ensures interoperability between all network zones and keeps track of their most recent states.
Inter-Blockchain Communication Protocol: The zones can be connected to the Cosmos Hub using the Inter-Blockchain Communication Protocol, or IBC. This allows information and data to travel between connected zones freely and seamlessly. Once connected, a zone is interoperable with all other zones that are connected to the Cosmos hub.
Cosmos SDK: The Cosmos SDK allows developers to create their own blockchains by utilizing the Tendermint consensus algorithm. The Cosmos SDK offers standard functionalities that are featured in blockchains to reduce complexities. For any additional features, developers can create their own plugins.
History of Cosmos
Cosmos can be traced back to 2014, with the founding of Tendermint. The Cosmos whitepaper was published in 2016, with a token sale held in 2017. Tendermint, the gateway to the Cosmos ecosystem, was founded by Jae Kwon, Zarko Milosevic, and Ethan Buchman. The Cosmos team split in 2020, with Kwon stepping down as the CEO. While Kwon is still a part of the project, he is focusing on other initiatives. Peng Zhong replaced him as the CEO of Tendermint.
What Are the Characteristics of Cosmos (ATOM)?
Cosmos is similar to Polkadot, which is also creating an ecosystem that allows the interoperability of blockchains. However, Cosmos requires that independent blockchains have their own governance, run their validators, and secure themselves. Cosmos focuses on creating an interoperable ecosystem for different blockchains, allowing independent blockchains to communicate seamlessly. Cosmos ensures that its infrastructure is easy to use by enabling its software development kit to focus on modularity. This approach enables developers to create a network or blockchain by utilizing already existing code. Cosmos also ensures scalability, which means that more transactions can be processed than blockchains such as Ethereum or Bitcoin.
Technology and Security Behind Cosmos
The Cosmos Network utilizes several technical features to achieve its goal of creating an ecosystem for the seamless interaction between different blockchains. The features are primarily scalability, cross-blockchain bridges, the byzantine PoS algorithm, and a decentralized exchange.
The network is secured through the Tendermint BFT consensus, a consensus mechanism designed by the team at Tendermint. It creates a general-purpose consensus layer upon which specific developer-specific applications can be built. The primary function of the Tendermint Core is to ensure that each transaction is recorded on every machine in the correct sequence. Other benefits of the Tendermint BFT Consensus are
- Robust safety guarantees
- Increased scalability allows Cosmos to handle over 1000 transactions per second, even in unfavorable conditions.
- Ensures protection against attacks such as double-spend attacks, long-range-nothing-at-stake attacks, and censorship
- It also allows blockchains programmed in any language to be secured through the Tendermint BFT consensus.
ATOM Token Supply
The total supply of ATOM is 260,906,513, out of which 221,129,095 are in circulation. As a cryptocurrency, ATOM is not mined. Instead, it is earned through the process of staking. In 2017, Cosmos held two private sales and one public sale and raised $16 million, equal to about $0.10/ATOM. Of the total ATOM tokens, 80% was allocated to investors; the remaining 20% was divided between The Interchain Foundation and All In Bits.
Risks Involved With Cosmos (ATOM)
- With the launch of the Inter-Blockchain Communication (IBC) occurring only in February 2021, the adoption so far is relatively low, with only 35,000 active monthly users and 40 zones, out of which 95% of the activity is concentrated in just two zones.
- Cosmos faces stiff competition from similar projects such as Polkadot. Projects such as Ren, Bridge, and side chains such as Polygon also offer solutions that could eat into Cosmos’s market share.
Prior to listing Cosmos on the VirgoCX Platform, VirgoCX performed due diligence on Cosmos and determined that Cosmos is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Cosmos and/or its primary development team;
- The supply, demand, maturity and liquidity of Cosmos; and
- Legal and regulatory risks associated with Cosmos.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.